Croydon’s Brick by Brick to borrow more council money
0London Borough of Croydon’s standalone housing company has pushed back the date by which it will become self-financing after announcing plans to borrow more cash to develop new sites.
In last year’s business plan, the Brick by Brick company had anticipated that it would cease to require funding from the council from 2019/20.
However, the equivalent document for this year, which will be presented to the council’s cabinet next week, shows that the company will seek an extra £78m from the council.
A statement from Brick by Brick to Room151 said: “The fundamental reason for this is the addition of a new pipeline of sites into the 2019/20 business plan (an additional £206m).
“Essentially the extension of the programme requires more borrowing as it is substantially more investment.”
The extra funding will be made up of £58.5m in borrowing from the council at a commercial rate of interest, plus £19.5m of equity investment.
The council currently has a draft budget of £30m in 2019/20 to cover Brick by Brick funding.
The remainder will be covered by slippage from the 2018/19 budget of £175m, for which a budget adjustment of £100m was reported to cabinet in the second quarter.
A report to the cabinet said: “After 2021/22, BXB anticipates that it will become self-financing, with revenue from sales of housing sufficient to cover all known ongoing development expenditure.”
In addition, profits from this date will be used to pay down debt to the council, which is the company’s sole shareholder.
However, the statement from the company said: “The Brick by Brick business model will always require additional borrowing to support additional units for development – unless the programme reduced dramatically in terms of ambition – because all debt, interest and profit on schemes is returned to the council as the individual schemes complete.”
Brick by Brick has been trading since 2016 and now has a pipeline list of around 250 sites with capacity for over 4,000 homes.
To date the company has achieved planning consent on 39 sites which will deliver more than 1,250 homes.
The company said a further seven schemes have been submitted to the planning authority or are being prepared for planning.
However, its business plan warned it could be affected by a slowdown in the housing market caused by Brexit.
It said that although there is a “general expectation that the property market will pick up post-Brexit once the precise terms of a deal have become clearer”, it is taking a “more prudent position” in terms of its predictions for Croydon house prices.
It said: “The evidence…which has been used to value the company’s first units to launch for sale, indicates that the local market is likely to continue to stagnate.”
However, it said that a number of mitigating factors would help sustain the durability of the company’s business model.
Firstly, it said that most of the existing development programme is already in contract or has received tenders, removing much of the exposure to construction price inflation.
It added that all Brick by Brick viability appraisals always use current prices with no expectation of price rises built in.
In addition, grants from the Greater London Authority to support the delivery of affordable housing could provide support to the programme.
Lastly, due to the company’s relationship with council-owned charitable trust Croydon Affordable Homes, “unlike many other developers, Brick by Brick has considerable potential to use tenure as a means of addressing any potential reduction in property values”.
This could include varying the proportions of private, shared ownership and affordable rent properties in schemes, or introducing new temporary tenures to address drops in property prices, the business plan said.
